Archive for the ‘Business Method Patents’ Category

My thanks to Bill Bennett from Prizzeys law firm in Australia for this update on business method patents in Australia. As explaind in more detail below by Mr. Bennett, the subject case has qualified the “physical effect” requirement in Australia (which is akin to the “machine or transformation” requirement in the US) by now making it clear that the physical effect must be “central to the purpose or operation of the claimed process or otherwise arises…in a substantial way”. In Australia, the physical effect rule requires that a method must produce “a physical effect in the sense of a concrete effect or phenomenon or manifestation or transformation”. The Grant decision (Grant v Commissioner of Patents [2006] FCAFC 120) in which this proposition is set forth, also said that a change in the state or memory of a computer may be a “physical effect”. This post is worth reading to see how Australia is grapping with the issue of what to do with “abstract” business inventions that are implemented in “physical” computing systems, an issue that was not addressed by Bilski due to the fact that none of the claims at issue were computer implemented.

Ok, its been over a week since the “seminal” In re Bilski decision, and the reality is slowly sinking in: crazy Aunt Benson (Gottschalk v. Benson) and crazy Aunt Flook (Parker v. Flook) are out of the basement and back at the dinner table! Yes, these decisions, which many patent attorneys had hoped would fade in importance against more recent and better reasoned opinions, are now front and center again. Cited approvingly as “guideposts” for determining what is and isn’t statutory subject matter under Section 101, the Court again invites us to follow the principles set forth in these decisions in separating the unpatentable from the patentable under Section 101.

The only problem is that I have never been able to fully grasp or follow the logic used in these cases. Today I will take a look at claim 8 in the Benson case:

“The method of converting signals from binary coded decimal form into binary which comprises the steps of

(2) shifting the signals to the right by at least three places, until there is a binary `1′ in the second position of said register,

(3) masking out said binary `1′ in said second position of said register,

(4) adding a binary `1′ to the first position of said register,

(5) shifting the signals to the left by two positions,

(6) adding a `1′ to said first position, and

(7) shifting the signals to the right by at least three positions in preparation for a succeeding binary `1′ in the second position of said register.”

It’s unquestionable that Benson’s claim 8 passes the the machine or transformation (MOT) test, as the claim clearly requires the use of a machine (a reentrant shift register) to convert signals from binary coded decimal form into binary form. Furthermore, it is clearly a “process” under the broad definition given to that category of Section 101 subject matter in Bilski. The Benson Court killed it, however, because “[t]he mathematical formula involved here has no substantial practical application except in connection with a digital computer, which means that if the judgment below is affirmed, the patent would wholly pre-empt the mathematical formula and in practical effect would be a patent on the algorithm itself.”

And this is where I struggle with the logic for a number of reasons:

1. Why should it matter that the only known practical use of the process is on a digital computer? The process of claim 8, as limited to implementation in a digital computer, was an improvement to the data processing arts and did not block the use of BCD on computers to represent data, or even conversion between BCD and binary on a computer by other processes.

2. If the process itself was invented to improve the utility of a digital computer — indeed a very specific type of machine, why should the improvement be unpatentable because its only known practical use is on that very specific type of machine?

3. If the objectionable algorithm had been in use for a thousand years to solve a multitude of problems with paper and pencil before its application to a digital computer was discovered, would it make a difference? Or, put another way, if there was only one digital computer in the world, but one-hundred paper and pencil uses for the algorithm in question, would it then be acceptable to patent the process as restricted to the computer?

4. If the machine claimed in Benson was a mechanical device for performing the process of conversion, would that be patentable because it was “impractical” compared to a digital computer? If the mechanical device was the only known “computer” at the time the process was invented, would this device be preempted as it was the only practical machine for implementing the process?

5. If Benson had invented the computer itself, and sought to claim the process for conversion of BCD to binary contemporaneously therewith, would the claim be allowable because the machine itself was novel?

6. If other techniques for converting binary coded decimal to binary signals existed, then would a patent on the algorithm truly preempt conversion of binary coded decimal to binary in a digital computer? Wouldn’t this merely be preemption of one machine-process for doing the conversion?

I think it is clear that the “preemption” rule enunciated in Benson is at the very least is highly dependent on assumptions about the technological environment “external” to the invention, making it a slippery concept to apply with any degree of consistency, and indeed a rule that potentially gives different results at different points in the timeline of the technological environment.

In one of my next postings I will try to decipher (or not) how the application of a mathematical algorithm to the rubber curing apparatus/process in Diamond v. Diehr was different than the application of the mathematical algorithms in Flook and Benson, such that the former did not wholly preempt all practical uses of the algorithm but the latter did.

Jim Hallenbeck provided me with these direction to Examiners is to use the Machine or Transformation test to reject method claims unless it is clear the claims are directed to more than an abstract idea.

While the initial reaction to In re Bilski was one of relief that the Court did not put an outright kabosh on business method patents, the reality may be that the majority opinion differs little in practical effect than the Stevens dissent. In fact, the “hope” it leaves for protecting business methods reminds me a lot of one of my favorite “hope against hope” comedy scenes in “Dumb and Dumber” (Lloyd played by Jim Carrey and with Loren Holly as Mary):

Lloyd: What do you think the chances are of a guy like you and a girl like me… ending up together?

Mary: Well, Lloyd, that’s difficult to say. I mean, we don’t really…

Lloyd: Hit me with it! Just give it to me straight! I came a long way just to see you, Mary. The least you can do is level with me. What are my chances?

Mary: Not good.

Lloyd: You mean, not good like one out of a hundred?

Mary: I’d say more like one out of a million.

[pause]

Lloyd: So you’re telling me there’s a chance… *YEAH!*

In my estimation, any celebration for business method patent protection based on Bilski is about as misplaced as Loyd’s excitement to hear he had a one out of a million chance for a date. In fact, the Court’s decision is far closer to the outright ban urged by Justice Stevens’ dissent than it is even a limited victory for business method patents. In fact, by categorizing the claim in Bilski as an “abstract idea” the Court achieved something broader than a narrow ban on business method patents, as it also cast doubt on any claim, business method or not, that can be characterized as claiming something conceptual in nature that would “effectively grant a monopoly over an abstract idea” and additionally “preempt use of [risk hedging] … in all fields.”

If we look again at the actual claim in question, we see a number of steps that do not appear “abstract” in the ordinary sense one might think of it. In Merriam-Webster’s, “abstract” is defined as:

4 : having only intrinsic form with little or no attempt at pictorial representation or narrative content <abstract painting> :

When we look at one of the Bilki claims, it is hard to see why it covers an “abstract idea.” After all, it requires real people to perform real actions that result in real contractual obligations and real risk of capital, including:

a) performing a series of transactions between said commodity provider and consumers of said;

b) identifying market participants for said commodity having a counter-risk position to said consumers; and

c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.

These claim steps define a process that is not easily seen to be “disassociated from any specific instance”, “difficult to understand”, or “insufficiently factual.” The claim recites a specific instance of hedging risk for commodities, is not difficult to understand and is not insufficiently factual, as it is certainly enabling. Nor can I see how it is outside Section 101 because it “expresses a quality apart from an object.” Perhaps you could say it is expressed only in “intrinsic form with little or no attempt . . . at narrative context” but that doesn’t seem to be applicable either.

That leaves only definition number 3 in play, i.e. that the Bilski claim “[deals] with a subject in its abstract aspects” only and therefore is not within Section 101. But this leaves us with the question as to why the claimed process is considered abstract. Perhaps it is because its steps primarily involve or are predicated on legalities of commercial transactions and contracts, and that these transactions and agreements by themselves are “abstract” in the sense that they exist only as conceptual constructs enforced by an agreement amoung men or citizens of a society, and have no existence outside of this abstract realm. But then again, who really knows what the Court was thinking, as they did not provide any helpful logical analysis as to this crucial requirement of ruling a process inside or outside the realm of the abstract.

In the end, it was probably the great difficulty in defining what is or isn’t a “business method” that led the majority away from a rule that required such a definition. It is much easier to label a particular business method as an abstract idea than it is to define the universe of prohibited business methods. Fortunately or unfortunately, depending on how you look at it, the Court has invited the Federal Circuit to attempt to provide such a definition:

“In searching for a limiting principle, this Court’s precedents on the unpatentability of abstract ideas provide useful tools. See infra, at 12–15. Indeed, if the Court of Appeals were to succeed in defining a narrower category or class of patent applications that claim to instruct how business should be conducted, and then rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas, this conclusion might well be in accord with controlling precedent. See ibid. But beyond this or some other limitation consistentwith the statutory text, the Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject matter under §101.””

While it is not surprising that the Supreme Court affirmed the result in Bilski, it is somewhat surprising (at least to this commentator) that it held that business methods were candidates for patent protection so long as they did not fall within the well established existing judicially created exceptions to patent eligibility “for laws of nature, physical phenomena, and abstract ideas.” Moreover, the Court held that Section 101 was a “dynamic provision” and not limiting the scope of subject matter that may be patented other than the well established exceptions.

All in all, this is an expansive decision for patentable subject matter and casts doubt on a few of the Federal Circuit’s more recent decisions, In re Nuijten being one of them.

Key holdings of the Court include:

1) The method of hedging risk claimed in Bilski is not a “process” under §101. The concept of hedging risk and the application of that concept to energy markets are not patentable processes but attempts to patent abstract ideas.

2) However, business methods are not categorically outside the scope of Section 101.

3) The machine-or-transformation test is not the sole test for patent eligibility under §101. Section 101 is a dynamic provision and should be read broadly. As such, although the machine-or-transformation test may be a useful and important clue or investigative tool, it is not the sole test for deciding whether an invention is a patent-eligible “process” under §101. In holding to the contrary, the Federal Circuit violated two principles of statutory interpretation: Courts “ ‘should not read into the patent laws limitations and conditions which the legislature has not expressed,’ ” Diamond v. Diehr, 450 U. S. 175, 182, and, “[u]nless otherwise defined, ‘words will be interpreted as taking their ordinary, contemporary, common meaning,’ ” ibid. The Court is unaware of any ordinary, contemporary, common meaning of “process” that would require it to be tied to a machine or the transformation of an article. U. S. 124, 130, and nothing about the section’s inclusion of those other categories suggests that a “process” must be tied to one of them.

4) Nothing in the opinion should be read as endorsing the Federal Circuit’s past interpretations of §101 (e.g., State Street, 49 F. 3d, at 1373), leaving past precedent with little weight going forward.

Interesting Excerpts from the opinion:

“Adopting the machine-or-transformation test as the sole test for what constitutes a “process” (as opposed to just an important and useful clue) violates these statutory interpretation principles. Section 100(b) provides that “[t]he term ‘process’ means process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.” The Court is unaware of any “‘ordinary, contemporary, common meaning,’” Diehr, supra, at 182, of the definitional terms “process, art or method” that would require these terms to be tied to a machine or to transform an article. ”

“This Court’s precedents establish that the machine-or- transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible “process.” F. 3d, at 966–976 (concurring opinion).But times change. Technology and other innovations progress in unexpected ways. For example, it was once forcefully argued that until recent times, “well-established principles of patent law probably would have prevented the issuance of a valid patent on almost any conceivable computer program.”Diehr, 450 U. S., at 195 (STEVENS, J., dissenting). But this fact does not mean that unforeseen innovations such as computer programs are always unpatentable. See id., at 192–193 (majority opinion) (holding a procedure for molding rubber that included a computer program iswithin patentable subject matter). Section 101 is a “dynamic provision designed to encompass new and unforeseen inventions.” J. E. M. Ag Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., 534 U. S. 124, 135 (2001). A categorical rule denying patent protection for “inventions in areas not contemplated by Congress . . . would frustrate the purposes of the patent law.” Chakrabarty, 447 U. S., at 315.” (emphasis added)

“Section 101 similarly precludes the broad contention that the term “process” categorically excludes business methods. The term “method,” which is within §100(b)’sdefinition of “process,” at least as a textual matter and before consulting other limitations in the Patent Act and this Court’s precedents, may include at least some methods of doing business. See, e.g., Webster’s New International Dictionary 1548 (2d ed. 1954) (defining “method” as“[a]n orderly procedure or process . . . regular way or manner of doing anything; hence, a set form of procedure adopted in investigation or instruction”). The Court is unaware of any argument that the “‘ordinary, contemporary, common meaning,’” Diehr, supra, at 182, of “method” excludes business methods. Nor is it clear how far a prohibition on business method patents would reach, and whether it would exclude technologies for conducting a business more efficiently. See, e.g.,Hall, Business and Financial Method Patents, Innovation, and Policy, 56 Scottish J. Pol. Econ. 443, 445 (2009) (“There is no precise definition of . . . business method patents”). . . . The argument that business methods are categorically outside of §101’s scope is further undermined by the fact that federal law explicitly contemplates the existence of at least some business method patents. Under 35 U. S. C. §273(b)(1), if a patent-holder claims infringement based on“a method in [a] patent,” the alleged infringer can assert adefense of prior use. For purposes of this defense alone, “method” is defined as “a method of doing or conductingbusiness.” §273(a)(3). In other words, by allowing this defense the statute itself acknowledges that there may bebusiness method patents. Section 273’s definition of “method,” to be sure, cannot change the meaning of a prior-enacted statute. But what §273 does is clarify the understanding that a business method is simply one kindof “method” that is, at least in some circumstances, eligible for patenting under §101.”

“In searching for a limiting principle, this Court’s precedents on the unpatentability of abstract ideas provide useful tools. See infra, at 12–15. Indeed, if the Court of Appeals were to succeed in defining a narrower category or class of patent applications that claim to instruct how business should be conducted, and then rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas, this conclusion might well be in accord with controlling precedent. See ibid. But beyond this or some other limitation consistentwith the statutory text, the Patent Act leaves open thepossibility that there are at least some processes that can be fairly described as business methods that are withinpatentable subject matter under §101.”

“In light of these precedents, it is clear that petitioners’ application is not a patentable “process.” Claims 1 and 4 in petitioners’ application explain the basic concept of hedging, or protecting against risk: “Hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.” . . . The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea,just like the algorithms at issue in Benson and Flook. Allowing petitioners to patent risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.”

“Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas.The Court, therefore, need not define further what constitutes a patentable “process,” beyond pointing to the definition of that term provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr. And nothing in today’s opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past. See, e.g., State Street, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357. It may be that the Court of Appeals thought it needed tomake the machine-or-transformation test exclusive precisely because its case law had not adequately identifiedless extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook, and Diehr. In disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Actand are not inconsistent with its text. The judgment of the Court of Appeals is affirmed.”

Am I the only one who ocassionally amuses himself with the high irony of banking industry lobbyists pressuring Congress and filing Amicus briefs to put the kabosh on business method patents such as patents on mortgage products? See for example: http://www.patentlyo.com/files/08-964-bank-of-america-et-al.-1.pdf (thanks to PatentlyO for this link).

While I am at best agnostic on business method patents per se (but bullish on patents for technology that supports a business process), I hardly think anyone can any longer argue with a straight face that slowing down the dissemination of “innovative” ideas like exotic (and highly toxic) mortgage backed securities would be a bad thing.

Maybe we should require Wall Street to patent their new ideas and have the Government pay to enforce them so that we can limit the damage to our economy from these innovations as much as possible. Perhaps Wall Street has shown us a new use for patents.

Welcome to my new blog on software patents. It has been a long time since I started in the patent profession – I got my USPTO registration number in 1982 – and since then the debate and confusion over software patent protection, or at least the boundaries of that protection, has continued on. It’s been a meandering journey through the 70’s, 80’s, 90’s and 00’s, featuring several early and by some accounts inconsistent Supreme Court decisions — Benson (1972), Flook (1978) and Diehr (1981), the copyright vs. patent wars (80’s), the flip-flopping of USPTO policy from anti-software, to pro-software and a little bit back again, and the largely progressive Federal Circuit jurisprudence notwithstanding the arguably backtracking “machine or transformation” test. And let’s not forget the endless never-say-die opposition to software patents by the League for Programming Freedom and its European counterparts. Yes, it has been over fifty years of a zig-zagging, one-step-forward, two-steps backward but ultimately forward-moving path to establishing patent protection for software, and it’s not over yet! Of course none of the League’s predictions that the software industry would be destroyed by patents have come true. Far from being destroyed by patents the industry has flourished into one of the US’s most important and innovate industrial sectors. And it’s still as innovative as ever as cloud computing and mobile applications and myriad other new developments place unfathomable computing power literally in the hands of billions of people throughout the world.

So let’s get back to the future – where do we find ourselves now in this long, arduous legal journey? Well, of course we are on the brink of what will no doubt be another seminal pronouncement by the Supreme Court in the Bilski case. This time it will be a pronouncement on the patentability of business methods, and the odds are against business methods. Many believe, and I can’t say I feel strongly the other way, that patent protection was conceived to protect the technological arts, not the business or finance arts, and any such expansion of statutory subject matter should be fully debated in the halls of Congress before it is imposed on the entire machinery of American business.

While it is a little late to predict what the Supreme Court will hold in Bilski since the decision is only hours or days away, I want to go on record, in my first blog posting, with my prediction. So here is what I think the Supreme Court will hold:

Congress intended that Title 35 protect the technological arts, not the business/financial arts, that the invention in question is not technological in nature, and are therefore non-statutory subject matter.

To determine whether an invention is technological in nature, one must look at the nature of the innovation, not the form of the claim, much the same way patent exhaustion under Quanta Computer focuses on the “essential features” or “material parts” of a claimed invention to determine if the sale of an item exhausts the claims at issue. As such, if the novelty of the invention lies not in its technological character, but rather its business/financial nature, then the invention is non-statutory even if claimed in terms of a computer system or computer process. Accordingly, one cannot dress up a wolf in sheep’s clothing and side-step the ban on business method patents.

On the other hand, technological innovations used to support business methods will remain patentable, so long as the nature of the innovation is technological.

What exactly is “technological” and what is not will be defined in some manner but the exact contours of this definition will remain to be decided in future cases.

Finally, the Federal Circuit’s “machine or transformation test” must include a technological arts requirement, and even then it not the only way to differentiate statutory from nonstatutory subject matter.

To find that methods of doing business are not patentable, the Court may in addition or the alternative invoke the well established prohibition on the patenting of abstract ideas or mental steps. I hope, however, that it base its decision on these principles for at least two reasons. First, a computer-implemented business process is no more abstract than many other technological software or data processing innovations that do merit patent protection. For example, many data processing innovations meriting patent protection involve improvements in organizing, storing or processing various types of information that can all be said to involve some degree of abstraction at least in the sense that the data itself only describes or models a thing or concept that exists in the “real world.” Secondly, for similar reasons I think the “mental step” analysis is also unproductive, since a computer can perform logic that is often identical to the mental steps that humans use to solve problems. So to say that a computer software invention is nonstatutory because it replicates mental steps can, if taken to its logical conclusion, requires the outcome that many if not most computer software inventions are non-statutory. Certainly, if one were to invent a computer system that could perfectly replicate the thought processes of a human it would be a phenomenal technological achievement, not nonstatutory subject matter! So, the mental steps doctrine is problematic at best when used as a test for statutory subject matter in the realm of computer-implemented inventions.

So, the next time you will hear from me is when Bilski is handed down, and that may be later today.